Leaving China, Samsung heading towards Vietnam to optimize profits
Leaving China, Samsung heading towards Vietnam to optimize profits
Samsung’s Empire, which has been built up on the profuse and low labor cost in China, tends to move to Vietnam, where it can find better conditions.
Samsung has surpassed Apple to become the world’s biggest mobile phone manufacturer which provides high end products priced at over $900 and popular products valued at less than $150.
Samsung’s products have reached out to every corner in the world from its factories in China, which allowed the group to make products at the lowest possible costs.
However, things are getting different. China is no longer the place which can provides low-cost labor force. The demand for high end phone products has decreased, while Chinese manufacturers have cut the prices continuously to attract customers.
Therefore, Samsung, like the other high-technology groups Nokia or Intel, has decided to flock to Vietnam, where it can take full advantage of the labor force with the cost just equal to 1/3 of China.
In March 2013, Samsung Electronics Vietnam Thai Nguyen (SEVT) spent $2 billion to build the high technology complex in Thai Nguyen province. In October 2013, Samsung Electro-Mechanics Vietnam announced another investment sum worth $1.2 billion in the factory that makes microchips and electronic parts for mobile phones.
Setting foot in China in 1992, Samsung has got 13 factories and 7 research centers there. More than 45,000 Chinese work at Samsung’s factories in China, which is equal to 19 percent of Samsung’s workers all over the globe, according to Bloomberg.
Chinese high economic growth has led to the increasingly high pay for Chinese workers, which makes China no longer attractive in the eyes of foreign investors.
A 2012’s survey by the Japan External Trade Organization (JETRO) showed that a worker in Beijing receives $466 a month on average, which was triple the pay for a worker in Hanoi who received $145.
In fact, Samsung has decided to move to Vietnam not only because of the low labor cost it expects in Vietnam, but also because of the high tax incentives offered by the government of Vietnam.
While Samsung understands that it needs to leave China to avoid the increasingly high production cost, it has been welcomed by Vietnam with open arms.
Samsung Electronics was “audacious” as described by some analysts when claiming for the low corporate income tax of 10 percent for the whole life of the project, the tax exemption for the first four years and the 50 percent tax reduction in the next nine years.
According to Dat Viet, the preferential tax rates are only applied to high technology firms. Meanwhile, Samsung Electronics could not be considered as high technology firms, if referring to the High Technology Law.
However, after negotiating with the Vietnamese government, Samsung has obtained what he wanted: the high tax incentives and the recognition as a high technology corporation.
The decision on offering high tax incentives to Samsung remains controversial until now, because they go beyond the current tax incentive frame designed for foreign investors. Economists, citing the low figures about the tax sums paid by Samsung, commented that Vietnam has to sacrifice too many things to obtain the Samsung’s investment.
Intel, the world’s biggest computer chip manufacturer, has put its $1 billion assembling and testing factory into operation since 2010. Nokia said its factory has been running with full capacity. Meanwhile, LG Electronics is building a 400,000 square meter factory.
Bloomberg has quoted Than Trong Phuc, Managing Director of DFJ VinaCapital LP in HCM City as saying that South Korean companies have been present everywhere in Vietnam.
vietnamnet
